Stocks rose on Friday as European Union leaders agreed on measures to tackle the region's sovereign debt crisis and data showed U.S. consumer confidence rose to a six-month high.
An agreement on stricter budget rules for the euro zone went someway to address the structural problems behind the bloc's debt crisis, but investors said more was now needed to relieve stress in the region's troubled debt markets.
Equities had risen in anticipation of a plan, with the S&P 500 up 6.5 percent since late November. But Wall Street tumbled on Thursday after the European Central Bank dashed hopes for additional bond buying.
At least part of Friday's rally was a snap-back from the previous session's losses, traders said.
The fiscal agreement will help, but not for long, said George Feiger, chief executive of Contango Capital Advisors based in San Francisco.
There is no happy ending to the situation. There are just solutions that are not horrible, he said.
The Dow Jones industrial average <.DJI> was up 199.01 points, or 1.66 percent, at 12,196.71. The Standard & Poor's 500 Index <.SPX> was up 22.10 points, or 1.79 percent, at 1,256.45. The Nasdaq Composite Index <.IXIC> was up 51.64 points, or 1.99 percent, at 2,648.02.
Banks, which have been pressured by the uncertainty over Europe, rallied after the summit. Bank of America Corp
In the latest sign of resilience in the U.S. economy, consumer sentiment rose to its highest level in six months in early December on signs of a better jobs market and an improving economy, according to a survey by Thomson Reuters/University of Michigan.
Tom Donino, co-head of equity trading at First New York Securities, said there was still a bearish bias among traders that had been hurting performance over the past two weeks. Continued strength would likely spark performance-chasing, especially from hedge funds, he said.
If they can stabilize the problems over there in Europe to where people aren't worried about a meltdown scenario every time they walk in the door, this market was ready to go up and it has, said Donino.
The EU summit failed to secure changes to the EU treaty among all the member countries and investors warned the move was far from a panacea. Indications suggest the region is sliding into a recession and questions about how to bring down high sovereign debt yields are still unanswered.
Goldman Sachs suggested that investors short German equities through the benchmark DAX index <.GDAXI> in a note to clients published late on Thursday.
The European summit seems focused on a set of future priorities for increased fiscal risk sharing and the outlining of some of the needed elements of a new fiscal arrangement, but looks to have little to say about alleviating proximate stresses in Greece and Italy and the European banking system more generally, Goldman said.
Still, Italian bonds reversed losses, with traders citing frequent European Central Bank forays into Italian debt markets throughout the day.
Traders also said fast money accounts were covering short positions in bonds of so-called peripheral EU countries.
Some caution signals were sent by major U.S. companies. DuPont and Co
Texas Instruments Inc
(Reporting By Angela Moon; Editing by Kenneth Barry)